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3 Safe Investments in Emerging Economies

Starbucks, Walt Disney, and Apple could be your ticket to emerging-market profits.

The rapid growth of massive emerging economies such as China and India will come to shape the global economy in the decades ahead. By 2030, Asian consumers will comprise two-thirds of the global middle class, according to a study by Brookings Institution. China and India alone are expected to constitute 40% of global consumption.

Investors who are able to identify the businesses best positioned to profit from these trends stand to make a fortune in the years ahead. Yet investing in emerging market stocks carries significant risk; financial reporting standards are typically weaker than here in the U.S., and geopolitical turmoil is a persistent threat.

Investors may therefore wish to consider investing in blue-chip American businesses such as Starbucks(NASDAQ:SBUX), Disney (NYSE:DIS), and Apple(NASDAQ:AAPL), which offer not only the relative safety of U.S. based businesses, but also exciting growth prospects in emerging markets.

Starbucks store in Dongguan, China. Source: Starbucks.

StarbucksEmerging markets hold massive potential for Starbucks. The coffee titan has more than doubled its store count to over 5,000 stores in its China and Asia Pacific (CAP) segment in the last five years -- and Starbucks plans to double that figure again in the next five years.

CAP delivered a company-leading 12% comparable-store sales increase in the second quarter, driven almost entirely by increased traffic. That outstanding store-level performance demonstrates Starbucks' ability to understand and adapt to the intricacies of local cultures in markets such as China. In fact, CEO Howard Schultz had this to say during a recent conference call:

We've been in China now over 15 years. We have over 1,600 stores in 80 municipalities with no exception. Every municipality in which we've opened Starbucks stores has worked. The unit economics of Starbucks China I think are a best of class of any company doing business in China. And as I said to a group just a little while ago... we will have thousands of stores when all is said and done...

In addition to the exciting opportunity in China, Starbucks operations in India are also in their nascent stages. Starbucks launched its first store in India in late 2012 and still has fewer than 100 locations in the country. Yet with a population of greater than 1.2 billion, heavy consumption of tea, and a growing appetite for coffee, India holds tremendous potential for Starbucks.

Artist rendering of Disney Shanghai. Source: Disney.

DisneyDisney is another excellent option when it comes to blue-chip American companies poised to profit from the growth of emerging economies. In fact, after decades of delighting fans around the world, Disney is set to open what's expected be its most-trafficked theme park ever early next year in China.

Disney Shanghai will be the company's first resort on the Chinese mainland. It will span nearly 1,000 acres -- making it far larger than Disney's other Asian parks. Disney Shanghai is also expected to serve 25 million guests during its first year, which, if true, will make it the most-visited park in the world (Disney's Magic Kingdom in Florida currently tops the attendance list at 19 million).

At a cost of $5.5 billion, Disney has a lot riding on its new Shanghai resort. The massive project should serve as the epicenter of its international operations, with emerging economies like China offering the potential for years of future growth.

Apple store in Pudong, China. Source: Apple.

AppleDeveloping economies are also helping to drive growth at what may be the bluest of blue-chip stocks: Apple. The tech juggernaut enjoyed 58% year-over-year revenue growth in emerging markets during the second quarter, and sales in these regions accounted for 40% of Apple's total revenue during that time.

China is at the forefront of Apple's expansion into emerging economies. After years of torrid growth, Apple's operations in China have become one of the most -- if not the most -- important drivers of its performance. Sales in its Greater China segment comprised 16% of Apple's total revenue in fiscal 2014, and 29% in its most recent quarter. Expect that figure to continue its ascent in the decade ahead.

The Middle Kingdom, with its population of 1.4 billion and rising middle class, is a huge opportunity for Apple. And although it's true that China's per-capita income levels are substantially lower than more developed economies such as the U.S., China also has a large body of wealthy consumers who crave the type of luxury products and prestige Apple provides. In addition, evidence is growing that Apple has become an aspirational brand even among China's urban poor.

Another intriguing opportunity is that only 40% of China's more than 1 billion mobile phone users owned a smartphone as of 2014, as per research company IDC. Expect that percentage to increase significantly as incomes continue to rise in the years ahead. And as greater numbers of Chinese consumers upgrade to smartphones, it's likely many of those purchases will be iPhones.

But make no mistake, it's not just iPhones that are enjoying surging demand in China. Mac unit sales jumped 31% in the most recent quarter -- a figure that's even more impressive when considering IDC's estimate that overall PC sales in China contracted by 5% during that same period.

Looking ahead, Apple plans to double its retail store count in China by mid-2016, which should only help to further boost sales. And with exciting new products like the Apple Watch seemingly made for Chinese consumers, don't be surprised if Apple's sales in China soon eclipse that of its current largest geographical segment, the Americas.

Author

Joe honed his investing skills as an analyst for Stock Advisor, Supernova, and Fool One. He battle-tested his investment philosophy and strategies as portfolio manager of Tier 1, a market-crushing Motley Fool real-money portfolio that delivered 24.58% annualized returns during its existence. Now, Joe’s mission is to pass on what he’s learned -- and what he continues to learn -- as a contributing writer to Fool.com.
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